Nowadays, advertising is a very big business. Very often is the major means of competing among firms. Furthermore, supporters of advertising claim that it brings specific benefits for consumers. First off all, they claim that advertising provide information to consumers about the quality or the availability of several products. This is very important for consumers because they do not waste time for searching search costs. If we suppose, that consumers want to shop at the lowest price shop but, they do not know which the store with the lowest prices is, then they gather information by reading and watching advertisements and TV commercials respectively or by visiting several stores. This action of consumers makes prices to fall, but only if consumers have the appropriate information. Otherwise the prices may rise. Supporters of advertising also claim that advertising may encourage price competition among the firms, if prices feature significantly in the advertisement. In addition to this, by increasing sales through advertising, firms can gain economies of scale, which means that it will help to keep prices down.
As we can understand information is very essential for consumers, not only because it lowers the prices, but also because it improves the quality of several products. The problem here is that it is unlikely for all the consumers to have perfect information. This means that the information is either imperfect or asymmetric. Imperfect information, as well as asymmetric information, lowers quality. Advertising may solve this problem in most cases. Consumers can gather information for several products through advertisements and because of this, producers must improve the quality of their products. But why firms advertise so much? As I noted above advertising increases consumer is information. So we can suppose that a firm which advertises much has high quality products. A very expensive advertising campaign is something like a signal to potential...
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